This is the 100% assessment for this module.

Answer all questions from part A (76%) and one question from Part B (24%).

The word limit for each question is indicated where it is relevant. Please note that these are the maximum and not minimum requirements for word count.

Please provide references and other sources of information (e.g., web links) you used in your assignment either in a form of a footnote or proper referencing style.

You are encouraged to use excel or other computer software and online resource to perform analyses for this assignment.  However, the answers should be self-contained in the sense that no  excel or other appendix should be used to further support your answers.  Just generate, report and discuss the analysis results in a form of tables or figures.

To take a snapshot of your screen, please use the snipping tool, and paste the snapshot into your answer as pictures.

 or use short cut “window key + shift + s”

Please submit one answer file online.  Deadline of submission: 12 pm (noon), Friday, 12 May 2023. The submission link will be available from 12 pm on 1 May.

Part A (Answer all questions in this part)

1    DuPont analyses

A.   Retrieve the annual income statement and balance sheet for ASML Holding NV (ASML:AEX) and Taiwan Semiconductor Manufacturing Co Ltd (2330:TAI) for the past five years ending in the year 2022 from FT.com. Present this raw data in four tables as an appendix at the end of your    report. (2 marks).

B.   Conduct a five-component DuPont analysis on the companies’ profitability, and present the  results in a table with the clear row and column headings in the main text of your answer. (6 marks)

C.   Analyze the results of the DuPont analyses to identify the key drivers and trends of the profitability (ROE) for each company (maximum 240 words). (8 marks)

D.   Calculate the sustainable growth rate of these two companies using the average statistics in the last five years (E.g using the average of ROE, not ROE in each year. Only one sustainable growth rate for each company is calculated).  Go to the Profile tab on FT.com and under the Peer analysis section select Growth Rates from the drop-down on the right.

a.    Compare the sustainable growth rate you calculated with the focal company’s (i.e., the same company) Revenue, Net Income and Capital Expenditure and Divide 5y growth    rates, and discuss what may be the potential causes and implications of differences (Maximum 300 words).  (6 marks)

b.    Compare and discuss these two companies’ growth rates with their peers.  Highlight any potential strengths and weaknesses. (Maximum 300 words). (6 marks)

(Subtotal 28 marks)

2    Multistage growth model

E.    Calculate the cost of equity of the two companies, using the following information:

i.       Estimate the beta by downloading One-year daily close-price data in the year 2022   for the companies and their corresponding market indexes: the AEX Amsterdam       Index (AEX:AEX) and the Taiwan SE Weighted Index (IXTA:TAI) from FT.com.  Report the estimation results (please include at least the estimated coefficients and their     standard error; no need to include this raw data in your answer or appendix). Please note that the downloaded data from FT.com is in descending order make sure the    order by date is in ascending order before calculating returns for your regression) (3 marks)

ii.       Calculate the adjusted beta using the following formula: Adjusted Beta = (0.67 * Raw Beta) + (0.33 * 1.0).

Research and briefly explain why such adjustment is used in practice. (Maximum 100 words) (2 marks)

iii.       Estimate the cost of equity with the adjusted betas and  the following information: The expected AEX market return is 13.451% and the risk-free rate is 3.059%. The expected IXTA market return is 12.329% and the risk-free rate is 4.056%.  (2     mark)

F.    Go to the Forecast tab on FT.com to collect the EPS and dividend forecasts for 2023 for the two companies (hint, hover the cursor over the bar chart to read the figure) and fill in the following tables by replacing the question mark with your collected data and calculations.  In (2 mark)

G.   Using the information in the last question, determine the value per share of the two companies using a multistage dividend growth model, utilizing the excel template provided in the seminar.

Specifically, the 2023 EPS forecast will be used as EPS 1 and the growth of EPS is determined by two stages.  First, during the next 8 years (2023-2030), the EPS is assumed to grow at the sustainable growth rate calculated in Question D. The payout ratio in this period is assumed to be the same as the ratio forecasted in 2023.  Second, after this initial growth phase of 8    years,  they enter a 12-year transition period (linear) from 2031.  The permanent growth rate ends at 5% and 8% in 2042 for TSM and ASML respectively and the companies grow at   that rate forever thereafter.  The dividend payout ratio is 70% for this period and thereafter. The cost of equity is taken from your answers to Question E.  Report the value per share for each company in your main answer.  Report two screenshots of the model setup from the Excel spreadsheet in your appendix (6 marks).

H.   Compare your estimate with the analyst's forecast range on FT.com.  Discuss the possible cause of difference including critically evaluating the assumptions on the growth rates and payout       ratios and taking into consideration of your findings in the Dupond analysis above.  (Maximum

200 words) (6 marks)

I.     Compare the estimate to the market price on 1 March 2023. Provide investment recommendations based on the above analyses.  Are both worth investing in?  If need to choose one of them which one would you recommend and why taking into consideration all of your analyses in Part A?  (Maximum 300 words) (7 marks)

(Subtotal 28 marks)

3    Macro and industry analysis

J.     Research and identify what are the key macroeconomic concerns and opportunities for the          semiconductor manufactory sector in the near 1-3 and far future beyond 2030.  How are these  economic and industry trends may affect both companies’ growth?  In your writing support your argument with reference to quantitative and qualitative information from the following                resources and another additional source you have used.  (Maximum 500 words).

•    Bloomberg Intelligence (2023 Outlook Global Semiconductor Manufacturing) is also available to download from the assessment area where you find this assignment.

•    News and research on FT:https://www.ft.com/semiconductors

(20 marks) (Subtotal 20 marks)

(Part A total  76 marks)

Part B (Answer one question from this part)

4    Short selling

Suppose at the end of 2020 Gamestop Inc (GME) has a total short interest of 68 million dollars, assuming that this short position is done by one investor on 31 Dec 2020 with reference to the closing price on that day.

A.   Find the daily closing price from FT.com between 31 Dec 2020 and February 19, 2021, and report them in a table.  (hint: obtain from the historical prices tab) (1 Mark)

B.   Calculate the number of shares that are shorted to create the short position of 68 million       dollars using the closing price on 31 Dec 2020.  Record your answer to the nearest share (not a fraction of a share). (1 Mark)

C.   Suppose your initial margin requirement is 50% of the value of the stock sold and 30% maintenance margin. You receive no interest on the funds placed in your margin account.  Assuming Gamestop has not paid dividends during the period of our investigation.  Use the excel template provided in the seminar to answer the following questions.

a.    How much do you need to contribute to your margin account? (3 Marks)

b.   What will be the margin requirement, the total amount of capital needed to maintain the position, and the rate of return on Wednesday, January 27, 2021, calculated using their closing price from FT.com? (4 Marks)

c.    On which date between 31 Dec 2020 and February 19, 2021, you will start to receive a margin call? How much new fund did you need to transfer into your margin account? (4 Marks)

D.   Discuss the risk of leverage and short sale trading this example demonstrated.  Considering  you only observe the information as the price move every day without hindsight,  If you are  one of the short-sellers, when should you cover your losses and close your position? What is the ground of your decision? What factors should you take into consideration?  (maximum

330 words) (11 Marks)

(Subtotal 24 marks)

5    Macroeconomics, Inflation and Portfolio Management

Choose one country or economic zone (e.g., the UK, EU, or any other country) and answer the following questions:

A.   Inflation has been a major concern in many economies as they recover from the negative effects of Covid-19. Identify the key macroeconomic indicators that measure inflation and inflation expectations. Provide a brief analysis of the changes in these indicators over the past five years in the country of your choice and discuss the latest inflation expectations.  (maximum 250 words) (8 marks)

B.    Explain the fiscal and monetary policies that can be implemented to control inflation. Give   an example of one such policy that has been announced, and discuss the anticipated impact of the policy as well as any potential concerns. (maximum 250 words)  (8 marks)

C.    Based on the current inflation expectations in the country, suggest an industry in which       investors may consider increasing their weight in their portfolio for the next 12 month         horrizon. Support your recommendation with an analysis of the relationship between          industry performance and inflation, and discuss other potential strategies for managing the impact of inflation on a portfolio's performance. (maximum 250 words) (8 Marks)

(Subtotal 24 marks)

6    ESG investing and Fund performance

There is growing interest in the investment of the Environment Social and Governance (ESG) fund. However, picking one that is in line with investors’ value but also financially rewarding is a challenge.

Go to FT.com, under the MARKETS>MARKETS DATA>FUNDS section, and use the search box to search “ESG” related funds.  Go through some of them and pick three funds from the list.

A.   In a table report the names of the fund you selected and the links to their Summary page on FT.com. (1 marks)

B.    Research these funds through FT.com, Morningstar.com and the fund provider’s own website, to understand what are their underlying investment strategy to be able to claim   that they are ESG focus.  Critically evaluate what are the difference and similarities in their approaches. (maximum 250 words) (8 marks)

C.    Use the information in the Performance and Risk tabs, and present a summary table       (additional graphs can be included) of the performance and risk of the funds.   Critically   evaluate their performance over the different periods and compare with their peers that have similar investment focus. (maximum 350 words) (10 marks)

D.   If this is the only portfolio you will invest in, which fund would you invest in? Explain your decision. (maximum 150 words) (5 marks)

(Subtotal 24 marks)

7    Quantitative Investment Strategy and Bloomberg backtesting

Go tohttps://www.investwithstyle.org/strategies/factor-investingand select two strategies from the two different categories (e.g. Growth, Value, Momentum Account etc.).

A.   Briefly explain the rationale for the two strategies. (maximum 200 words) (4 marks)

B.   Applying the strategy to the FTSE350 stocks or any other market index universe of your choice (making sure that the index has more than 100 stocks) on the Bloomberg terminal.  Use percentage sorting by keeping the top (or bottom) 10% instead of keeping the top (or bottom) 10 securities. Provide screenshots of the EQS screening criteria (2 marks).

C.    Backtest the strategy with an annual rebalance for the past 15 years relative to last year end, using an equal-weighted portfolio and benchmarking against the FTSE 350 index (or the corresponding index). Provide screenshots of the "Equity Backtesting: Model Builder" with this setup (2 marks).

D.   Report the screenshot of the Overview tab of the two EQBT results.  Critically evaluate the performance of the portfolio by commenting on the graphs and statistics. (maximum 250  words)(8 marks).

E.    Consider a way to combine the two strategies [hint: to avoid having a too small portfolio in   this double filtering (e.g., 10% *10%= 1%), for the second criteria one may increase this filter to 30% or 50%.  For example, for 350 stocks after the double filtering of the top 10% and       then the top 30%,  we will have about 350*10%*30%=10.5 stocks in our portfolio].  Report a screenshot of the Overview tab of the EQBT results.  Critically evaluate the performance of   the portfolio by commenting on the graphs and statistics (maximum 250 words) (8 marks).

(Subtotal 24 marks)